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The good life isn't so good for luxury brands these days. Thanks to the Great Recession, many consumers aren't as eager to spend big bucks on high-end fashion and accessories. Spending less is in vogue and that has been good news for companies that are ready with bargains.

And that explains why GSI Commerce, an e-commerce and multichannel solutions provider, is paying up to $350m for Retail Convergence, the company that operates private sale website RueLaLa.com and off-price e-commerce website SmartBargains.com.

Reading GSI's press release, there's little doubt that this acquisition was driven by RueLaLa.com.

The private sale space is a hot one. While consumers today may be less willing to spend $2,000 on a hand bag than they were a year or two ago, give them the same hand bag for $500 and many will jump. And that's precisely what private sale websites like RueLaLa.com offer: high-end (and luxury) goods at prices tolerable to those who don't have an American Express black card.

In the first three quarters of this year, RueLaLa.com has pulled in over $66m in revenue. That's a huge jump from the $8.3m in revenue it generated in the first three quarters of 2008. And GSI Commerce has plenty of reason to believe that there's more growth ahead: vente-privee.com, the leader in the space, reportedly pulled in well over half a billion dollars in revenue last year. Some believe vente-privee.com could be the next billion-dollar acquisition target for a major player like Amazon. Amazon is flying high right now and with its $900m acquisition of Zappos, has demonstrated that it's willing to pay big bucks if it sees something it likes.

Which is why GSI's acquisition of RueLaLa.com could be a smart play. While it's not anywhere near the size of vente-privee.com, according to GSI's press release, RueLaLa.com has 1.2m members, a high repeat purchase rate and attracts 10% percent of its member base to its site daily. That gives GSI something to work with and that's probably why Michael Rubin, GSI's CEO and Chairman, went so far as to call RueLaLa.com "a new growth pillar" for his company.

Retail Convergence's investors will certainly hope that he's right: the acquisition consists of $180m paid immediately in cash and stock, with an earn-out of up to $170m over three years which would eventually require nearly $52m in non-GAAP income from operations in year three. In other words, the acquisition is probably only a good deal for Retail Convergence if RueLaLa.com keeps growing and hits the mark for the next several years.

That may very well be doable given the growth in the private sales space and the momentum RueLaLa.com already has. But something also tells me we can expect to see a lot more competition entering the fray. Watch this space.

Photo credit: bbaunach via Flickr.

Patricio Robles

Published 28 October, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (1)

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rebe

I love vente privee. If you want to register to have a look, it is here www.referrerventeprivee.tk

over 6 years ago

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